City College misused funds, probe finds

Then-chancellor steered taxpayers' money to political campaigns for 2 state education measures, law firm finds

Stephanie Rice and Lance Williams

Published 4:00 am, Thursday, October 9, 2008

Photo: The Chronicle

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ChronWatch; Philip Day, Jr, city college chancellor
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An unidentified person is carried out of Norris Hall at Virginia Tech, the second target of the gunman who struck there more than two hours after his first attack.
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An unidentified person is carried out of Norris Hall at Virginia Tech, the second target of the gunman who struck there more than two hours after his first attack.
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Philip Day, ex- City College chancellor.
Ran on: 10-09-2008
Philip Day, ex- City College chancellor.
Ran on: 05-07-2009
Ex-Chancellor Philip Day is being investigated on suspicion of diverting public funds to political campaigns.
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Former Chancellor Philip Day quit in 2008.
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Former Chancellor Philip Day quit in 2008.
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Former Chancellor Philip Day was charged with misusing school funds.
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Former Chancellor Philip Day was charged with misusing school funds.
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Former Chancellor Philip Day was charged with misusing school funds.
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Former Chancellor Philip Day was charged with misusing school funds.
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Former Chancellor Philip Day was charged with misusing school funds.
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Former Chancellor Philip Day was charged with misusing school funds.
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Philip Day is accused of shifting college funds to political campaigns.
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Philip Day is accused of shifting college funds to political campaigns.
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Philip Day, former City College of San Francisco chancellor less

The financial transactions, made at the direction of then-Chancellor Philip Day in 2006, appear to have violated state laws against misusing taxpayers' funds and concealing the true source of political donations, according to a draft report written by a law firm hired by the college's trustees.

In an interview, Day denied misusing college funds or misreporting donations.

"That did not happen," Day said Tuesday. "That is not true." He said he had not seen the report and had not been told of its findings.

The report, which was written earlier this year by the law firm of Renne, Sloan, Holtzman & Sakai but was not made public, suggests a continuing pattern of campaign finance abuses at the 110,000-student college.

Prompted by disclosures in The Chronicle, a grand jury is investigating City College officials on suspicion that they funneled public funds into a 2005 City College bond campaign, college records show.

The new abuses uncovered by the law firm unfolded in this way, the report says:

Before the November 2006 state election, the report says, Day ordered that a $28,670 payment owed to the college by the PepsiCo beverage company be deposited with the Foundation of City College of San Francisco. The foundation is a charitable nonprofit organization that raises money for college programs.

Then, the report says, Day told the foundation to donate the money to two state education initiatives: Proposition 1D, a successful 2006 education bond issue, and Proposition 92, a measure to boost funding for community colleges that failed at the polls in 2008.

In a second transaction before the 2006 election, the report says, Day told an aide to transfer $7,000 to the foundation from the nonprofit corporation that operates the college bookstore. At the chancellor's request, the foundation used that money for donations to the two education measures as well, the report said.

State law forbids spending taxpayers' funds on political campaigns, and it requires political donors to report the true source of funds they contribute. Both laws appear to have been violated, according to the report.

Day, who became chancellor in 1998, resigned in March to head the National Association of Student Financial Aid Administrators, based in Washington, D.C.

In a phone interview, he said he had never steered college funds to the foundation for use in political donations. The foundation was well-funded and legally entitled to make political donations, he said. Thus, he said "it wasn't necessary" for him to funnel funds to the foundation for donations, as the report alleged.

Day also denied the report's assertion that he told an aide, Stephen Herman, that the PepsiCo money was to be used for donations for statewide campaigns. "I don't know where they got that information," Day said.

Day said he did not speak to the law firm's investigators, saying they were still trying to find a mutually convenient date for an interview. The report said Day declined an interview, saying his lawyer advised against it because of a pending investigation by the San Francisco district attorney's office.

The Renne law firm, whose partners include former City Attorney Louise Renne, often does legal work for the college. Trustees asked the firm to investigate the 2006 donations in March, after the San Francisco Bay Guardian reported on an internal audit that noted an apparent link between the college's payments to the college foundation and the foundation's donations to the state education bond campaign.

Trustees have discussed the report privately but have never released it. The Chronicle reviewed a copy provided by a confidential news source.

A scandal unfolds

Political scandal first flared at the college last year, when The Chronicle reported on donations in the successful city campaign to pass a $246.3 million college bond issue in 2005. Before that election, the owner of a motorcycle training school that rented a parking lot from the college was told to write a $10,000 rent check to the political committee that was promoting the bond measure, the newspaper reported.

The official who steered that donation, Associate Vice Chancellor James Blomquist, said he had thought the transaction was proper.

Also in 2005, coffee shop owner Vannarith Nget, who had recently won a contract to open an outlet in a downtown college building, made a $20,000 lease payment to the bond political committee instead of to the college. Before the election, the political committee refunded the money to Nget, who then paid the money to the college, Day said at the time. A grand jury is investigating these donations, college general counsel Ronald Lee recently wrote to trustees.

According to the law firm's report, further fundraising abuses occurred in 2006, as the Community College League of California, a lobbying group, began drumming up support for what would become Prop. 1D, a $10.4 billion education bond, and Prop. 92, the community college fund increase. Day told the league he would raise $70,000 for the two campaigns, the report says.

Meanwhile, in September 2006, the college learned it would receive a windfall of at least $24,000 from PepsiCo to make up for underpayments on a contract to sell beverages on campus.

The report says Chancellor Day told Herman, his aide, to instruct PepsiCo to make its payment to the Foundation of City College. Day told Herman the money would help fulfill his fundraising commitment to the lobbying group, the report says. On Oct. 25, 2006, PepsiCo wrote three checks to the foundation totaling $28,670.

At about the same time, Day told Herman to transfer $7,000 from the nonprofit City College Bookstore Auxiliary, which operates the campus bookstore, to the foundation, the report says. Herman serves as president of the bookstore auxiliary as part of his college job. Herman also obtained $3,000 from Nget, the coffee shop owner who was involved in the 2005 donation. At Day's direction, Herman paid that money to the foundation as well, the report says.

The day before the election, at Day's request, the foundation donated $35,000 to Prop. 1D, the report says. Three weeks later, again at Day's request, the foundation donated $35,000 to the Prop. 92 campaign, the report says. The report suggests that $38,670 of the $70,000 donated on these two occasions came from PepsiCo, the bookstore and the coffee shop owner, while the rest represented money the foundation had raised.

But Day said he never told Herman to use college funds for donations.

High-level discomfort

When the PepsiCo windfall became available, he said he decided, "for now, let's put it in the foundation," where it could be used to fund student programs. He said he didn't recall transactions involving the coffee shop and the bookstore but noted that the bookstore had the legal right to make political donations.

Other college officials were uneasy about the transactions, the report says. Before the election, college Chief Financial Officer John Bilmont and Vice Chancellor Peter Goldstein discussed the PepsiCo money and agreed "the money could not go to the foundation," apparently for legal reasons, the report says. Goldstein said he would discuss the matter with the chancellor, the report says, but the transaction went ahead anyway.

New concerns arose after The Chronicle's story was published last year. After talking to Day, Vice Chancellor Goldstein ordered the $28,670 PepsiCo payment retrieved from the foundation and put in City College's accounts, the report said. In addition, $7,000 was repaid to the bookstore and $3,000 to the coffee shop owner, the report says. Day said he did not recall why the foundation repaid the money.

The report recommended that college trustees alert the district attorney, the state attorney general and other agencies that enforce clean-government laws about the donations.

Diverted donations

November 2005: A college official tells the owner of a motorcycle school that rents a college parking lot to make a $10,000 rent payment to the political campaign promoting a $246.3 million City College bond measure.

Summer 2006: The Community College League of California asks Philip Day, chancellor of City College of San Francisco, to raise $70,000 for Proposition 1D and Proposition 92, state measures to help community colleges.

Oct. 25, 2006: PepsiCo writes three checks totaling $28,670 to make up underpayments for campus beverage sales. At Day's direction, the checks are made out not to the college, but to the Foundation of City College of San Francisco.

Nov. 3, 2006: Day directs an aide to send the PepsiCo checks to the foundation. Day says the money is for "donations for statewide campaigns." Day denies making the statement and says he did not misuse college funds or misreport donations. The same day, an additional $10,000 is also transferred to the foundation - $7,000 from the nonprofit City College Bookstore Auxiliary and $3,000 from the owner of a campus coffee shop.

Nov. 6, 2006: At Day's request, the City College foundation donates $35,000 to the campaign for Prop. 1D. The measure passes.

Nov. 30, 2006: At Day's request, the foundation donates $35,000 to Prop. 92. The measure is defeated in February 2008.

Damage control

April 10, 2007: Four days after The Chronicle reports that City College funds had been diverted into the bond campaign, Day tells trustees he will make sure no other diversions have occurred.

April 11, 2007: After speaking to Day, Vice Chancellor Peter Goldstein orders $38,670 retrieved from the foundation. Of that, $7,000 goes to the bookstore, $3,000 goes to the coffee shop and $28,670 goes into the college's accounts.

June 11, 2007: Trustees hire Sacramento lawyer Steven Churchwell to investigate the political fundraising abuses reported by The Chronicle. Although he interviews Day, he does not learn about the checks from PepsiCo, the bookstore or the coffee shop.

March 2008: After the San Francisco Bay Guardian reports on an apparent link between the college's payments to the foundation and the foundation's 2006 political donations, trustees hire the Renne Sloan law firm to investigate.

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